Self-employed income tax

What is self-employed income tax?

If you're self-employed, you'll pay income tax in a different way to employed workers, as it's charged on your profits rather than your gross income via a self-assessment tax return.

To work out the correct figure, you need to deduct your business expenses from your income - this includes both business expenses and larger capital allowances. You can also deduct any losses carried over from previous years.

The resulting amount of profit is what you'll be taxed on.

• Find out more: self-employed capital allowances. See what you can claim as tax-deductible.

How do you file a tax return as a self-employed person?

You can either submit your tax return online, fill out a paper tax return or use commercial software. HMRC has a list of commercial software providers you can choose from.

When you first decide to be self-employed, you should register your business with HMRC as soon as possible.

If you've never submitted a self-assessment tax return before, you'll be assigned a Unique Taxpayer Reference (UTR) number.

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Which self-employment supplement should I choose?

It's important to make sure you declare all relevant income on your tax return; most income sources are given different sections if you file online.

If you file a paper tax return, you'll need to fill out supplementary pages.

The main self-assessment section taxpayers need to fill out is SA100 and it's the first section you're sent to if you file your return online.

If you're self-employed, you'll also need to fill out the section SA103S (the short version) or SA103F (the full version).

You can fill in the short one if your turnover for the 2024-25 tax year was £85,000 or less and you have no complications, such as a change of accounting date.

However, you can't use the short form if your accounting period - the dates you choose to prepare your accounts for each year - isn't the same as your basis period (ie your business year, which is the period HMRC assesses your tax on).

This means many people won't be able to use the short supplement in their first year of trading.

It's up to you to make sure you use the right supplement, so if you opt for the short form make sure there are no complications that could invalidate it.

• Useful link: check HMRC's notes to help you fill in the supplement forms - the short form and the full form.

What if I'm a sole trader with a limited company or partnership?

In addition to the supplements already covered, if you're in partnership, you need the partnership supplement (SA104), which also has a full and a short version.

If you're the director of a limited company, you will count as an employee of the business for tax purposes, and will therefore need to fill out the employment supplement (SA102).

What are the self-employed income tax rates for 2024-25?

When it comes to paying income tax, there aren't any differences in the tax rates you pay compared with employees.

You can use our income tax calculator to find out how much you'll pay.

In 2024-25, self-employed workers and employees pay:

• 0% on the first £12,570 you earn.
• 20% on income between £12,571 and £50,270.
• 40% on income between £50,271 and £125,140.
• 45% on income over £125,140.

The threshold for basic and higher rate tax bands is unchanged from 2023-24, though the additional rate threshold was lowered from £150,000 to £125,140 in April 2023. 

Scottish income tax bands, rates and allowances are different.

• Find out more: UK income tax rates in 2024-25 

National Insurance for the self-employed

The story is different when it comes to National Insurance contributions. Self-employed people pay a lower rate of National Insurance compared with employees.

The main Class 4  rate on contributions has been cut for the 2024-25 tax year. It's now payable at 6% (down from 9%) on earnings between £12,570 and £50,270, and 2% on earnings over this threshold.

Class 2 contributions have now been scrapped, and replaced with a credit for self-employed workers earning over £6,725. If you earn under £6,725 you won't get the credit, but you can still opt to buy Class 2 contributions voluntarily at a cost of £3.45 a week in 2024-25.

Read our guide to find out all about self-employed National Insurance.

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